Cuba's New Visionary

Anyone who has smoked a recently produced Cuban cigar understands the vision of Fernando Domínguez Valdés-Hevia, the joint managing president of Habanos S.A., the global distribution organization for the island's most prestigious product.

Until recently, bad construction and poor blends plagued Cuban cigars, but the new crop of habanos on the market not only drew well but delivered excellent flavor. Reviews of Cuban cigars in this magazine over the last year have underlined this improvement, with many receiving outstanding ratings.

Domínguez, the 44-year-old Madrid-born co-president of Habanos with Cuban Oscar Basulto, believes that this improvement in quality represents the future of Cuban cigars, which will not only include the high-quality smokes of today but also the development of new products and brands.

"In this company we have experienced a change in the concept for Cuban cigars," said Domínguez, who was named to the Habanos post last year after the departure of the highly respected co-head Jaime Andrade Garcia. "Volume is not important, because Cuban cigars are a luxury product. Our main focus is on quality, quality and quality. I think that deficiencies we have had in the past years we have solved, and quality is now the most important thing. It's been due to a change of mentality in the entire industry in Cuba."

Just a few years ago, Cuba embarked on a massive expansion policy in hopes of producing hundreds of millions of cigars each year to bring much needed currency to its weak economy. Some of the key heads of the Cuban cigar industry believed the island could reach an annual production of close to 300 million cigars. It all almost ended in disaster as quality plummeted. The Cubans simply overstretched their resources and capacity. Today, exports are estimated at between 140 million and 150 million cigars, although Habanos will not supply actual figures. Some say shipments are much less. In any case, cigar production finally appears to be in line with tobacco growing and processing, and with the newfound consistency in quality, Domínguez doesn't expect production to increase drastically in the near future.

Domínguez, whose favorite smoke is the Cohiba Siglo VI, moved to Havana four years ago with his wife and two daughters to take a position with Habanos. He likes his life in Cuba with his family and enjoys Cuban culture and various sports, such as tennis. He is a former semiprofessional volleyball player. However, what Domínguez really relishes is the challenge of his job. A nuclear engineer by training, he has worked most of his adult life for the Spanish tobacco giant Tabacalera S.A., which in 1999 merged with the French tobacco multinational Seita to form Altadis. He has done everything from overseeing the domestic cigar production in Spain to developing a strategy for Tabacalera for building a major cigar portfolio before the company went public in 1998.

"So I have more or less some ideas from my past experiences about the cigar business," he says enthusiastically. "It's very, very interesting. I love very much the tobacco sector, but above all cigars."

In the last year, a lot of emphasis has been put on improving conditions in the key export factories for producing cigars, and Domínguez believes that much more can been achieved. "This [improvement in quality] has been not only the draw-checking machines in the factories, but also the in the crops and agricultural side—all the tasks done by the Tabacuba [the Cuban organization in charge of production and agriculture]. All the supervision in the fields in the crops, with all teams of quality control then supervising every estate, has been very important.

"I think that there has been a tremendous effort on the agricultural side of our business, including some technological innovations," he adds. "It coincides with the handmade idea of the product. We have had many technological innovations in all processes, from the nursery and seedlings to the curing and fermentations."

However, the most obvious changes in the last year or two have been in the production side of the business. This year, the H. Upmann factory (José Martí) was moved to a new building and La Corona and Por Larrañaga factories will be consolidated and moved to another new building. In addition, Heroes de Moncada was closed and workers were reassigned to other Havana factories. The new factories are cleaner and better organized. They resemble many of the modern cigar facilities in other prominent manufacturing countries, such as the Dominican Republic and Nicaragua.

"It's all been done to improve quality and to improve the working conditions for the workers," says Domínguez. "The change has not affected the handmade process of making cigars. In a way, you are providing better conditions, which will at the end of the day improve the processes and the overall quality…. Cuban cigars are handmade and we want to keep the same processes that have been here for the last 200 years."

Habanos has already had a number of successes in the market in the last few years. Among the most successful were the creation of an annual limited-edition cigar series and specialty humidors, as well as new sizes for key brands. Habanos focuses most of its energy these days on "six global brands," as Domínguez describes them: Cohiba, Montecristo, Romeo & Julieta, Partagas, Hoyo de Monterrey and Quintero. "Global brands can be found everywhere," he says. "Other brands are mainly for specific markets. The resources of the company are limited, so we have to focus on main brands."

Last year, a new size, or vitola, was introduced to Cohiba, Siglo VI (52 ring gauge by just under 6 inches), to wide acclaim, and a similar size was launched for Montecristo this spring, called Edmundo. Trials are being undertaken with green-wrapper cigars (candela), which were highly successful before the revolution. Packaging for many of the major brands has been updated. And unpopular sizes have been canceled in many brands.

Nonetheless, some consumers and retailers are complaining that the market doesn't need so many new cigars. And they wonder why Habanos hasn't simply focused on improving the quality and availability of popular brands and sizes. Moreover, they say that too many specialty cigars, such as limited-edition humidors, are being released on the market.

"We think that we have cut back slightly on limited cigars and there is not an oversupply," says Domínguez. "The cigars are limited editions. We cannot make these cigars without the best tobacco, the best wrappers. So by virtue, they are limited. It depends on the results of the crop, of course. We have limited raw materials."

He says that the limited-edition cigars have definitely helped the overall performance of Habanos in the last year, and he expects them to continue to do so. "Last year, the general activity of Habanos improved in comparison with 2002 despite the world's problems," says Domínguez. According to a press release from Altadis in Spain in February, Cuban cigar sales increased by approximately 17 percent in dollar terms in the first nine months of 2003, but still lagged below full potential because of the international economic situation.

"You know that the handmade luxury products are always affected by downward trends in the world economy," he adds. "But we have noticed an improvement in the economic cycle mid-last year…in general terms, the activity of Habanos has improved, but for us the most important thing is quality. Volume has improved slightly, but quality has also improved. It is more important for us, quality and profitability, than volume."

Keeping quality at a high level may be difficult, however, if the U.S. market ever reopens it could throw the balance of production and quality out of kilter. However, Domínguez didn't seem too worried. "This is not under our control, of course, so we are managing with our current situation," he says. "So we are not focusing on that. When the embargo is lifted, this will be another situation and we will manage."

Domínguez says that there will most certainly be enough quality tobacco on the island when the United States opens. Tobacco yields are already improving each year and there are additional locations in Pinar del Río (Cuba's premium tobacco growing region) that can be planted, which will help increase the supply of good leaves. Plus, Habanos has contingency plans for training new rollers and opening new factories. Tobacco stocks are already on the increase, he says.

Over the years, I have heard various figures for the possible annual sales of Cuban cigars in the United States; 20 million has been a popular one used. Domínguez thinks that the potential for sales could be even more. He wouldn't be nailed down on an actual figure, but he did say that he thought the country could sell more than what Spain takes in a year, which is about 35 million cigars.

He would not elaborate much on how the U.S. market would be organized with cigar brands, since American companies such as General Cigar own a number of Cuban brands for that market and there will bound to be some legal questions involved with Cuban cigar distribution. "With the Altadis brands, Habanos is the owner of all these brands," he says. "In all the countries, except for some brands in the U.S.A. We are living in this situation now, and when the embargo is lifted, we will change how we are going to manage the new situation."